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British firms are keeping a lid on pay and automating more production while some shoppers, faced with rising prices, are switching to cheaper products, the Bank of England said on Wednesday.

PHOTO: REUTERS

[LONDON] British firms are keeping a lid on pay and automating more production while some shoppers, faced with rising prices, are switching to cheaper products, the Bank of England said on Wednesday.

The findings came in a report from around the country that showed Brexit is hurting households, mainly though the weaker pound.

Businesses serving British consumers are suffering compared with export-focused manufacturers, as the weaker exchange rate and higher inflation following last year's vote to leave the European Union feeds through the economy.

Last week BoE Governor Mark Carney said Britain's economy was suffering from uncertainty and higher prices caused by the referendum decision in June 2016, and the central bank cut its forecasts for future growth and wages.

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Wednesday's report by the BoE's regional staff - which fed into last week's forecasts - showed businesses planned to offer pay awards of between two and three per cent, despite growing recruitment difficulties.

"Growth in manufacturing (employment) intentions was stable and was dampened by a stronger focus on productivity improvements and automation over job creation," it added.

The BoE forecast last week that economic growth would slow to 1.7 per cent this year and 1.6 per cent in 2018, while wages are seen rising by two per cent and then three per cent.

After unexpectedly outperforming other big advanced economies last year, in 2017 Britain had its slowest first half of the year since 2012.

Firms reported prices for goods and services rose at the fastest pace in four years, in line with official measures of inflation, and consumer spending growth slowed.

"Some contacts ascribed this to increased caution among consumers, and to consumers trading down to cheaper products or brands," the BoE said.

Sales at consumer services businesses grew at their slowest pace in over four years, while manufacturing exports saw their fastest expansion since 2011.

Business investment - which the BoE hopes will offset some of the damage to consumer spending - remained modest, with unspecified "uncertainty" weighing on longer-term plans.

The agents' report on contacts with businesses in June and the first half of July, which includes the period when Prime Minister Theresa May unexpectedly failed to win a parliamentary majority, as well as the start of Brexit talks in Brussels.